UNITED STATES


SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 Form 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2016


[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

000-53598

Commission File Number SAUER ENERGY, INC.

(Name of small business issuer in its charter)


Nevada 26-3261559

(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identificación No.)


1620 Emerson Avenue, Oxnard, CA 93033 (Address of principal executive offices)


888-829-8748

(Registrant’s telephone number, including area code)


Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]

No [ ]


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [ ]


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non- accelerated filer or a smaller reporting company filer. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated Filer [ ] Smaller reporting company [X]


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 271,206,349 shares of common stock, par value $0.0001 per share, as of June 24, 2016.

SAUER ENRGY, INC. REPORT ON FORM 10-Q TABLE OF CONTENTS


Page

PART I – Financial Information

Item 1. Financial Statements (Unaudited)

3

Item 2. Management’s Discussion and Analysis of

Financial Condition and Results of Operations

17

Item 3. Quantitative and Qualitative Disclosures About Market Risk

19

Item 4T. Controls and Procedures

19

PART II – Other Information


Item 1. Legal Proceedings

22


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

23


Item 3. Defaults Upon Senior Securities

23


Item 4. Mine Safety Disclosures

23


Item 5. Other Information

23


Item 6. Exhibits

24


Signatures

25


SAUER ENERGY, INC.

Condensed Balance Sheet

(unaudited)

May 31, 2016

8/31/2015

ASSETS

Current Assets

Cash

$ 61,223

$ 4,968

Petty Cash

1,500

1,500

Prepaid Expenses

-

13,507

62,723

19,975

Property and Equipment, net

61,718

113,201

Other Assets

Intangible Assets

1,237,531

1,292,984

Security Deposit

16,502

14,507

1,254,033

1,307,491

Total Assets

$ 1,378,474

$ 1,440,667

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Accounts Payable and accrued liabilities

$ 19,840

$ 14,566

Note payable

-

-

Convertible Loan and Interest Payable

-

275,000

Derivative Liability on Convertible Loans

-

446,785

Total Current Liabilities

19,840

736,351

Commitments and Contingencies

-

-

Stockholders' Equity

Common Stock, $0.0001 par value; authorized

650,000,000 shares, issued and outstanding were

268,819,942 shares outstanding on May 31, 2016 and

148,173,100 shares outstanding on August 31, 2015

26,881

14,817

Additional Paid-In Capital

10,935,480

9,351,999

Accumulated deficit

(9,603,727)

(8,662,500)

Total Stockholders' Equity

1,358,634

704,316

Total Liabilities and Stockholders' Equity

$ 1,378,474

$ 1,440,667


The accompanying notes are an integral part of these financial statements.


SAUER ENERGY, INC.

image

Statement of Operations (unaudited)

For the Three Months Ended For the Nine Months Ended


May 31, May 31,

image

2016 2015 2016 2015

image

Revenue $ - $ - $ - $ -


General and

Administrative Expenses:

Professional Fees

39,148

46,060

73,456

94,832

Consulting

495,770

155,920

557,080

229,734

Research & development

expense

57,337

161,579

154,313

295,274

Other general and

administrative expenses

123,616

106,198

364,870

321,038

715,871

469,757

1,149,719

940,878

Loss from operations

(715,871)

(469,757)

(1,149,719)

(940,878)

Other Income (expense)

Interest and finance

(113,176)

(59,805)

(238,294)

(59,805)

Changes in derivative liability

61,363

(72,917)

446,785

618,750

(51,813)

(132,722)

208,491

558,945

(Loss) before taxes

(767,684)

(602,479)

(941,228)

(381,933)

Provision (credit) for taxes

-

-

-

-

Net (Loss)

$ (767,684)

$ (602,479)

$ (941,228)

$ (381,933)

Basic and diluted earnings (loss) per common share,


$ (0.00)


$ (0.00)


$ (0.00)


$ (0.00)

image

Weighted average number

of common shares outstanding,

basic and diluted 230,506,741 122,118,859 191,280,841 117,780,618

image


The accompanying notes are an integral part of these financial statements.


SAUER ENERGY, INC.

Statement of Cash Flows

(unaudited)

For the Nine Months Ended

May 31,

2016

2015

Cash flows from operating activities:

Net (loss)

$ (941,228)

$ (381,933)

Adjustments to reconcile net loss to

net cash provided (used) by operating activities:

Amortization

54,936

55,472

Depreciation

51,500

45,227

Change in derivative liability

(446,785)

(618,750)

Issuance of stock for services or claims

499,470

284,600

Financing costs paid in shares

237,576

59,805

Changes in operating assets and liabilities:

Other Assets

10,512

593

Accounts payable and accrued expenses

5,274

(16,584)

Net cash flows (used by) operating activities

(528,745)

(571,570)

Cash flows from investing activities:

Purchase of furniture and equipment

-

(16,010)

Net cash (used by) investing activities

-

(16,010)

Cash flows from financing activities:

Proceeds from issuance of note payable

50,000

-

Payments on note payable

(50,000)

(225,000)

Proceeds from issuance of common stock, net of costs

585,000

378,785

Net cash (used by) provided by financing activities

585,000

153,785

Net increase (decrease) in cash

56,255

(433,795)

Cash, beginning of the period

4,968

460,863

Cash, end of the period

$ 61,223

$ 27,068

Supplemental cash flow disclosure:

Interest paid

$ 719

$ -

Taxes paid

$ -

$ -


The accompanying notes are an integral part of these financial statements.

Sauer Energy, Inc.

Notes to the Financial Statements May 31, 2016

(unaudited)


Note 1 - Organization and summary of significant accounting policies:


These unaudited interim financial statements as of and for the three and nine months ended May 31, 2016 reflect all adjustments which, in the opinion of management, are necessary to fairly state the Company’s financial position and the results of its operations for the periods presented, in accordance with the accounting principles generally accepted in the United States of America. All adjustments are of a normal recurring nature.


These unaudited interim financial statements should be read in conjunction with the Company’s financial statements and notes thereto included in the Company’s fiscal year end August 31, 2015, report. The Company assumes that the users of the interim financial information herein have read, or have access to, the audited financial statements for the preceding period, and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. The results of operations for the nine-month period ended May 31, 2016, are not necessarily indicative of results for the entire year ending August 31, 2016.


Following is a summary of our organization and significant accounting policies:


Organization and nature of business – Sauer Energy, Inc. (formerly: BCO Hydrocarbon Ltd.) (identified in these footnotes as “we” or the “Company”) was incorporated in the State of Nevada, United States of America on August 19, 2008. It was a natural resource exploration stage company and anticipated acquiring, exploring, and if warranted and feasible, developing natural resource assets. BCO had the right to acquire a 50% working interest in an oil and gas lease in Alberta, Canada.


Sauer Energy, Inc. (the “Old Sauer”) was incorporated in California on August 7, 2008. The Company is engaged in the design and manufacture of vertical axis wind turbine (VAWT) systems.


On July 25, 2010, the Company, the president and sole director Malcolm Albery (“MA”)

and Dieter Sauer, Jr. (“DS”) completed a closing (the “Closing”) under an Agreement and Plan of Reorganization, dated as of June 23, 2010 (the “Agreement”). The Agreement provided: (a) for the purchase by DS of all of the 39,812,500 shares of the Company owned by MA for

$55,200; (b) the contribution by DS of all of the shares of Old Sauer, a California corporation (“SEI”) to the Company; (c) the assignment of certain patent rights related to wind turbine technology held by DS to the Company; and (d) the election of DS to the Company’s board of directors. In connection with the Closing, Mr. Sauer was elected President and CEO of the Company and two former shareholders of the Company agreed to (i) indemnify the Company against any claims resulting from breaches of representations and warranties by the Company in the Agreement; (ii) to acquire and cause to be returned for cancellation an aggregate of 67,437,500 shares of the Company’s common Stock, including all of the shares owned by former

officer and director Daniel Brooks and; (3) assume all of the Company’s obligations in connection with certain oil and gas leases in Canada.


The agreement was executed on July 25, 2010. Sauer Energy, Inc. became a wholly-owned subsidiary of the Company. On August 29, Malcolm Albery resigned as President and was replaced by Dieter Sauer. In the following month, the Company changed its name from BCO Hydrocarbon Ltd. to Sauer Energy, Inc.


The Company’s fiscal year-end is August 31.


Basis of presentation – Our accounting and reporting policies conform to U.S. generally accepted accounting principles applicable to developing enterprises.


Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.


Cash and cash equivalents - For purposes of the statement of cash flows, we consider all cash in banks, money market funds, and certificates of deposit with a maturity of less than six months to be cash equivalents.


Fixed assets - Property, plant and equipment is valued at cost less accumulated depreciation and impairment losses. If the costs of certain components of an item of property, plant and equipment are significant in relation to the total cost of the item, they are accounted for and depreciated separately. Depreciation expense is recognized using the straight-line method for the vehicle and the double declining method for all remaining assets and is amortized over the estimated useful life of the related asset. The following useful lives are assumed:


Vehicle & Equipment 5 years


Furniture & Fixtures 7 Years


Fair Value of Financial Instruments - The Financial Accounting Standards Board issued ASC (Accounting Standards Codification) 820-10, “Fair Value Measurements and Disclosures" for financial assets and liabilities. ASC 820-10 provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. FASB ASC 820- 10 defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. FASB ASC 820-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available.

The following summarizes the three levels of inputs required by the standard that the Company uses to measure fair value:



Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.


As of the end of our most recent fiscal quarter, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, as of May 31, 2016, such internal control over financial reporting was not effective. This was due to deficiencies that existed in the design or operation of our internal control over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.


The matters involving internal control over financial reporting that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; and (2) inadequate segregation of duties consistent with control objectives of having segregation of the initiation of transactions, the recording of transactions and the custody of

assets. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of May 31, 2016.


Management believes that the material weaknesses set forth in items (1) and (2) above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.


This quarterly report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only the management's report in this quarterly report.


Management's Remediation Initiatives


In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures: We will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. First, we will create a position to segregate

duties consistent with control objectives of having separate individuals perform (i) the initiation of transactions, (ii) the recording of transactions and (iii) the custody of assets. Second, we will create a senior position to focus on financial reporting and standardizing and documenting our accounting procedures with the goal of increasing the effectiveness of the internal controls in preventing and detecting misstatements of accounting information. Third, we plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us.

Although there is substantial uncertainty in any such estimate, we anticipate the costs of implementing these remediation initiatives will be approximately $100,000 to $150,000 a year in increased salaries, legal and accounting expenses.


Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.


We anticipate that these initiatives will be at least partially, if not fully, implemented by August 31, 2017.


Changes in Internal Control over Financial Reporting


There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15 (f) under the Exchange Act) during the quarter ended May 31, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION


Item 1 – Legal Proceedings


On October 23, 2013, the Company filed a complaint against St George Investments, LLC (“St. George") in Superior Court, Ventura County California seeking declaratory relief as to contracts relating to the Company’s May, 2012 purchase of the assets of Helix Wind from St. George for treasury stock then valued in excess of $1.8 Million and a subsequent February 2013 promissory note for $275,000 executed under the terms of an amendment to the May, 2012 asset purchase agreement. The Company alleged that the Helix Wind asset purchase price had been substantially paid and, in fact, may have been overpaid in light of St. George’s failure to deliver all of the intellectual property of Helix Wind. St. George interpreted the contracts and promissory note as entitling it to a windfall recovery above and beyond the asset purchase price and promissory note amount. On November 21, 2013, St George exercised its right as a non- California based entity to remove the action from the Ventura state court to the federal court sitting in Los Angeles, the United States District Court for the Central District of California. On November 26, 2013, St. George filed its answer and counterclaim seeking to enforce its interpretation of the contracts and to thereby collect approximately $440,000 above and beyond what is otherwise due, plus costs and attorney’s fees. On February 3, 2014, the parties participated in a mediation session at the Federal Court and executed an agreement reflecting a settlement in principal (the “Settlement”) which becomes binding only if the parties are unable to come to terms on more formal settlement agreements. The parties have since executed more formal settlement agreements which are included as an exhibit hereto. The basic terms of the Settlement required the issuance of an additional 5,000,000 shares of our common stock to St George under the Helix APA; required St. George to purchase an additional shares of our common stock for $300,000 ($0.15 per share) which is a price above the market price at the time of the Settlement; fixed the amount due on the note issued to St George in connection with the Helix APA at $600,000 and granted the Company certain prepayment rights. The Settlement provides for limitations on the amounts of our common stock that St. George may sell into the market. The foregoing is a summary only and is qualified by reference to the settlement agreement included as an exhibit to the Company’s Form 10-K for the year ended August 31, 2014. As of May 31, 2016, the note and settlement has been paid in full.


Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

None.


Item 3 – Defaults Upon Senior Securities

None.


Item 4. Mine Safety Disclosures

Not applicable


Item 5 – Other Information

None.



Item 6 – Exhibits


The following documents are filed as part of this Report:


31.1* Certification of Chief Executive and Financial Officer pursuant to Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).


32.1* Certification pursuant to Securities Exchange Act of 1934 Rule 13a-14(b) or 15d-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.


101.INS** XBRL Instance Document


101.SCH** XBRL Taxonomy Extension Schema Document


101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document 101.LAB** XBRL Taxonomy Extension Label Linkbase Document 101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document 101.DEF** XBRL Taxonomy Extension Definition Linkbase Document

image


*Filed herewith.


**Furnished herewith.


SIGNATURE


In accordance with the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.


SAUER ENERGY, INC.


Date: June 27, 2016


By: /s/Dieter R. Sauer, Jr.

Name: Dieter R. Sauer, Jr., CEO


(Principal Executive, Accounting and Financial Officer)